Daily Times

As the remittances to Pakistan has hit a record high in May the Ferozepur Road Industrial Association (FRIA) has said that foreign remittances flows are crucial which can support the country’s account balance amidst low volumes of Foreign Direct Investment (FDI) and nominal growth of exports.

The FRIA Senior vice chairman Shahbaz Aslam said that overseas Pakistanis living in Gulf should further be motivated to maintain an upward momentum in remittances, as they contributed more than 60 percent of the total inflows during last couple of months.

Quoting the State Bank of Pakistan, he reported that remittances in May totaled $3.2 billion, an increase of 54.2 percent over the same month last year. In May, remittances rose 15.3 percent on a month-over-month basis.

In the 11 months (July-May) of the fiscal year 2024, Pakistan received $27.1 billion in remittances from its citizens working abroad, representing an 8 percent annual increase.

An all-time monthly surge in remittance flows occurred in May, primarily due to seasonal factors or Eid-related inflows, as Pakistanis living abroad sent large sums of money to their families to purchase sacrificial animals in preparation for Eidul Azha, which falls in the third week of this month. Analysts attribute this to these events. Saudi Arabia ($819.3 million), the United Arab Emirates ($668.5 million), the United Kingdom ($473.2 million), and the United States of America ($359.5 million) were the top four countries from which remittance inflows arrived in May.

However, a shift towards more regulated money transfer channels, a spike in Pakistani immigrants in other countries, and the nation’s stable currency and economy are the main causes of the increase in remittances between July and May.

Remittances are typically higher during the Eid season; however, the record high numbers are likely due to a stabilizing economy and a large number of people going abroad for work, he said. Remittances are exceeding forecasts, according to him, since they were $27 billion in July through May of FY2024, compared to the predicted $28 billion for the entire year. In the same way, the IMF predicted $28 billion in overseas remittances for FY2024.

“We believe, with this momentum and growth trajectory, Pakistan can achieve remittances of $29.5-30 billion for FY2024, up 8-10 percent YoY,” he said.

Remittances are a major source of non-debt-creating inflows that Pakistan relies on to maintain its foreign exchange reserves. Even though the SBP’s reserves, which were $9.1 billion as of May 31, are sufficient to cover imports for nearly two months, they are still low and won’t be sufficient to fund expected external financing needs for the next few years at the very least.

Pakistan has a looming deadline to repay a substantial amount of debt by July 2024, much of which relies on debt rollovers. The frequent visits of the Prime Minister and his team to Saudi Arabia, UAE, and China are mainly aimed at securing these rollovers, which are essential for setting the stage for the IMF program.

Shahbaz Aslam said that remittances can help not only in financing the deficit in import payments but also in foreign debt repayments, suggesting the government to focus on structural reforms, which can revive Pakistan’s economic growth with major focus on incentives for overseas Pakistanis workers.

The FRIA Chairman said if government supports overseas Pakistanis and provides them incentives, they can play a vital role in boosting Pakistan’s economy through their remittances and investments for high economic growth.